Oil at New Highs on Russia Worries

On-again, off-again worries about Russian oil production were on yet again Thursday, driving oil prices to new highs.

Near-term crude oil futures in New York jumped $1.58 to $44.41 a barrel, the highest in the two decades that futures have traded.

The surge in prices in recent weeks had halted Wednesday, after Russian oil giant Yukos announced that the Russian government -- which is seeking repayment of $3.4 billion in back taxes for 2000 -- would nevertheless allow Yukos to use its bank accounts to “continue financing production activities.”

New York oil futures tumbled $1.32 a barrel Wednesday.

But Thursday, Russia’s Justice Ministry revoked the permission granted by a court bailiff a day earlier, saying Yukos could not use previously frozen funds to pay for day-to-day operations.

Traders fear the loss of output from Yukos amid strong global demand. Yukos pumps 1.7 million barrels of oil a day, or about 2% of worldwide output.

“The market cannot afford to have this oil off the market for any length of time,” said John Kilduff, senior vice president at Fimat USA Inc.

Yukos has said that it does not have sufficient funds to pay the back-tax claims. Some analysts say Yukos may be dismantled and its parts sold as part of a Kremlin effort to gain further control over Russia’s economy.

Oil has soared more than $7 a barrel since June 30 and is up $11.90 a barrel year to date.

Robust global demand has pushed up prices, but analysts say the market also is demanding a premium on concerns that supplies from a number of key exporters could be interrupted.

“Continuing and possible problems in Iraq, Saudi Arabia, Nigeria, Norway and just about every other big exporter will keep us on edge,” said Nauman Barakat, senior vice president at Refco Energy Markets.

Moreover, the Organization of the Petroleum Exporting Countries has had difficulty reassuring markets that it has the ability to raise production. The cartel was expected to boost production 500,000 barrels a day starting this week.

PFC Energy, a Washington-based consulting firm, estimates that total global production will average 82.1 million barrels a day in 2004 -- or just 100,000 barrels a day above consumption.

Some analysts have forecast that the price of oil could rise as high as $50 a barrel by year’s end if demand remains strong and there is no significant increase in production.

Others see the potential for considerably lower oil prices.

Agbeli Ameko, managing partner at Denver-based energy research firm Enercast.com, said many of today’s large speculators, including investment hedge funds, have put their money into the oil markets lately because returns in stock markets have been lackluster.

“The funds are jumping on crude just because it’s hot,” Ameko said. But they could back out just as quickly, he said.